An employer provides all of his employees with life insurance protection equal to twice the employee's annual salary. Melba, age 42, has an annual salary of $70,000. Is Melba required to recognize income even though she is still alive at the end of the year and thus nothing has been collected on the life insurance policy? Explain.

Question

Alyson Blackburn

Business

28 October, 06:55

An employer provides all of his employees with life insurance protection equal to twice the employee's annual salary. Melba, age 42, has an annual salary of $70,000. Is Melba required to recognize income even though she is still alive at the end of the year and thus nothing has been collected on the life insurance policy? Explain.

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Answers (1)

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Noel Bright · Answer 1

Yes, Melba must include $108 in her total gross income.

Explanation:

If the insurance coverage exceeds $50,000, the employee must include the excess cost of the policy in his/her gross income as deemed premiums paid.

Melba's insurance coverage is $140,000 ( = $70,000 x 2), which exceeds the $50,000 threshold by $90,000. So Melba must include in her total gross income the cost of the premiums on $90,000. The IRS provides a table to calculate this amount, and since Melba is 42 years old, her monthly premium should cost $0.10 for every $1,000.

Melba's extra premium cost = ($90,000 / $1,000) x $0.10 per month x 12 months = $108